JPMorgan Believes Poor Supply Chain Data Already 'Baked Into' Stock

• Shares of Apple Inc. AAPL, HP Inc HPQ, Western Digital Corp WDC and Seagate Technology PLC STX are down more than 10 percent since December 14.
• JPMorgan’s Rod Hall maintained the ratings on all four companies.
• While 4Q PC sales were softer than expected, the share prices already reflect this, Hall stated.

According to prelim results released by Gartner, global PC shipments for 4Q15 came in at 75.7m units, representing an 8.3 percent y/y decline and missing the JPMorgan estimate by 1 percent. Shipments declined in all regions.

HP’s PC shipments fell 8 percent y/y, marginally better than the expected 10 percent decline. Shipments of Dell Inc. DELL were down 5 percent y/y, while those of Lenovo Group Limited (ADR) LNVGY declined 4 percent y/y. Meanwhile, Apple PC shipments grew 3 percent y/y, in-line with the JPMorgan estimate.

Gartner has projected a 1 percent y/y decline in PC shipments in 2016, which is higher than the JPMorgan estimate of a 3 percent decline.

“Given poor supply chain indications we had expected weaker numbers, if anything,” analyst Rod Hall wrote. He added, however, that most of this data “is baked into stock prices at this point though the trajectory of demand continues to be negative in our opinion.”

Hall mentioned that Apple, HP, Lenovo and Dell continued to consolidate market share in 2015. Seagate launched NAS HDD 8TB, which is a high-capacity drive that is optimized for RAID, NAS and server storage. The new 8TB drive is expected to be widely available at the end of 1Q16.

Analyst Gokul Hariharan of JPMorgan said that the semi inventory digestion cycle is completed, and there are signs of inventory restocking and rush orders getting stronger. He wrote, “Apple-related order cuts are under way, given weaker iPhone 6S order rates, but non-Apple demand (75-80% of semi demand) is seeing signs of recovery.”

Ratings

The rating for Apple has been maintained at Overweight, while HP and Seagate have Neutral ratings. Western Digital is not rated.